Former Moody's SVP charges that its analysis is "rotten to the core."

[Eric Garland]

If you wonder why the term "analyst" does not automatically confer authority and reliability, read this:

The former SVP of the derivatives product division at Moody's has filed a 78-page comment about the practices of his recently-former company, charging that the analysis process is completely corrupt.

Here are some key points:

• Moody's ratings often do not reflect its analysts' private conclusions. Instead, rating committees privately conclude that certain securities deserve certain ratings--and then vote with management to give the securities the higher ratings that issuer clients want.

• Moody's management and "compliance" officers do everything possible to make issuer clients happy--and they view analysts who do not do the same as "troublesome." Management employs a variety of tactics to transform these troublesome analysts into "pliant corporate citizens" who have Moody's best interests at heart.

• Moody's product managers participate in--and vote on--ratings decisions. These product managers are the same people who are directly responsible for keeping clients happy and growing Moody's business.

• At least one senior executive lied under oath at the hearings into rating agency conduct. Another executive, who Harrington says exemplified management's emphasis on giving issuers what they wanted, skipped the hearings altogether.

I think this is going to inspire a much needed discussion about real analysis.

Your thoughts?

 

[Trip Krant]

Levine, Ross.  An autopsy of the US financial system: accident, suicide, or neglig...  Journal of Financial Economic Policy; Vol. 2 No. 3, 2010, pp. 196-213.  (PDF)

[monica nixon]

Hi Avner,

 

Check out Matt Taibbi at Rolling Stone he has produced multiple investigative reports on all the fraud as business model abuses by the mortgage/banking/securitization industry, how the SEC sold out and became a lapdog, how TARP funds were grossly misappropriated (the article on Mack's wife), the case against Goldman, why Wall St isnt in jail, etc. Generally a cornucopia of everything that's desperately wrong.

 

Here are some links to some of the pieces:

 

http://www.rollingstone.com/politics/news/is-the-sec-covering-up-wa...

http://www.rollingstone.com/politics/news/the-great-american-bubble...

http://www.rollingstone.com/politics/news/exclusive-excerpt-america...

http://www.rollingstone.com/politics/news/the-real-housewives-of-wa...

http://www.rollingstone.com/politics/blogs/taibblog/the-s-e-c-s-rev...

http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-j...

 

I would also suggest you pick up some of Michael Lewis's books-specifically Liar's Poker and The Big Short.  As well "13 Bankers" by Simon Johnson and James Kwak is absolutely superb.  As an aside, its probably a really good idea to have a barf bag in hand because you will be disgusted.

 

Regards,

Monica

[Dimitrios Philippelis]

First of all we should congradulate the guy, the former Moody's SVP, who had the guts to bring into light this important subject. It means that there are forces which resist the fraud and fight for transparency and ethical existence of companies and people.

The next of point goes to the USA SEC that had its inner willing to reveal lots of unlawful practices, especially that of SIEMENS. But they left the job half. SIEMENS had paid many Greek corrupted and criminal politicians and the only one who knows is SIEMENS, they do not give the names of the Greek politicians who received  the money from SIEMENS. This company MUST be punished by the citizens of the globe and not only of the USA and etc.

If we can search in the past we can find a lot of evaluations of Mood'ys, S&Ps and Fitch providing three As as rating to the companies such as SIEMENS, ENRON, LEHMAN BROTHERS and why not to the present CONSECO which stole money of a lot investors, and the most scandalous of all was that the FORTUNE 500 was including into the 500 the CONSECO.

Of course some one has to say congradulations to mr. Steve Fairfield for his posting of the corrupted companies such as ENRON, WORLDCOM and etc.

[Trip Krant]

The SEC is an absolute joke that deserves no points.  It is an institution that has been captured and corrupted by the financial world it is tasked with overseeing. 

[Dimitrios Philippelis]

In the case of SIEMENS, SEC ordered the invistigation and this has to be told because it is traded in the NYSE. The company has done nothing, rather they were using the payment of the politicians.

[Dr. Avner Barnea]

Hello Monika, Many thanks.It seems to be very useful. Best, Avner

[monica nixon]

Hello Avner,

 

You are most welcome. I have a few web sites you might check out as well for some incisive non-mainstream analysis of the build up to the financial crisis, the causal factors, as well as all the underhanded and largely backroom dealing that happened, and is still transpiring, to provide air cover for the original fraud and the subsequent frauds to keep Wall St from ever being held accountable. Obliteration of years of accounting standards and fundamental tenets of contract law anyone?

Some of the analysts who are published on these sites as well do a great job of deconstructing the propaganda being spewed ever so prolifically to convince the public that things aren't as bad as they are, how the statistics are manipulated on everything from the unemployment rate to the CPI, GDP,  the real state of the banks, their ongoing efforts to walk away from liability and have full immunity, etc.

1) - http://theautomaticearth.blogspot.com/

2) http://dailybail.com/

3) http://www.nakedcapitalism.com/

4) http://www.zerohedge.com/

[Ari Korpinen]

Hello,

Yes, indeed, this disclosure from Mr Harrington is something I've been waiting for...that some insider from a major credit rating agency goes public and tells us all how the credit ratings are really made.

 

The discussion here has focused on company ratings, but how about the country ratings? Maybe the insights from Mr Harrington's disclosure can also explain some of the following mysteries: (1) Why France has a top rating with both S&P (AAA) and Moody's (Aaa), while Chile has a much lower rating (S&P: A+, Moody's: AA3). This despite the fact that France has a public debt to GDP ratio of 84.2% (according to the IMF) and Chile has 7.6%; or (2) Why Moody's hasn't yet downgraded the US federal government debt rating whereas S&P has; or (3) Why Finland continues to maintain a top credit rating with both S&P and Moody's. This despite the fact that Finland currently has a government whose only order of business is to provide loan guarantees to deadbeat EU countries, while at the same time having 25% of its population retired and a decreasing active youth population (future taxpayers). (This is comparable to a private consumer who has been diagnosed with a debilitating disease being able to continue borrowing from the bank, despite being in the habit of guaranteeing loans that his alcoholic neighbour takes for the purpose of buying more liquor).

 

Maybe the recent disclosure from Mr Harrington can explain this, too...

 

All the best,

Ari

[Dimitrios Philippelis]

Subjective approach and lack of ethics. They provide opinion in accordance with their personal interests, SIEMENS for example were bribing politicians in different countries, including Greece and no one of the evaluation houses knew it. The SEC came and ordered a legal probe because it was traded in the New York Stock Exchange and wanted to protect investors.

[JEONG CHUN PHUOC]

Not preaching the right way, because the material is all wrong.

because the materials are all wrong, one cannot preach them rightly...

....................................

JEONG CHUN PHUOC

SL, cONS eXT LAW, aDV sYARIAH cOMPETITION

[e-mail]